However, Ebitda margin at 14.8% (HSBCe 15.3%) shows the impact of higher operating expenses and the dilution of margins from the new hospitals (Vanagaram, Jayanagar, Trichy, and Nasik). Even in the pharmacy business, the company realised lower margins despite higher revenue per store.

The stock has run up c19% in the last three months (Sensex 8.6%) and it is trading rich at c18x implied EV to FY16e Ebitda. We believe these valuations build in expectations from some strategic divestment in the pharmacy or insurance businesses. Also, given significant bed addition and increases in marketing and staff expenses, there is still some time until margin recovers. We maintain our key estimates, though we increase our volume growth assumptions in the Hyderabad and other clusters. We revise our target price to R1,057 (previously R1,000), derived using SoTP valuations. The key upside risk is a deal announcement in non-core business or an infusion of capital into the hospital business through other options.